Q4 2021 Amerant Bancorp Inc Earnings Call

Good day, and thank you for standing by and welcome to.

Emirates Bancorp fourth quarter 2021 earnings conference call at this time, all participants are in a listen only mode. After the speaker presentation. There will be a question answer session to ask a question during the session joining depressed.

Please be advised that today's conference is being recorded and if you could.

Any further assistance please press star zero.

And I hand, the conference over to Jay speaking today.

Head of Investor Relations. Please go ahead.

Thank you Victor.

Good morning, everyone and thank you for joining us to review Omron Bancorp fourth quarter 2021 results.

Also on today's call are Jerry plush, our Vice Chairman, President and Chief Executive Officer, and Carlos <unk>, Our executive Vice President and Chief Financial Officer.

As we begin please note that the Companys press release, our discussion on today's call on our responses to your questions contain forward looking statements.

<unk> business and operations are subject to a variety of risks and uncertainties many of which are beyond its control and consequently actual results may differ materially from those expressed or implied.

Please refer to the cautionary notices regarding forward looking statements in the company's earnings release and presentation.

For a more complete description of these and other possible risks. Please refer to the company's annual report on Form 10-K for the year ended December 31, 2020 in our quarterly report.

Report on Form 10-Q for the quarter ended June 32021, and other filings with the SEC you connect with these filings on the SEC's website.

Ameren has no obligation and makes no commitment to update or publicly release any revision revisions to forward looking statements in order to reflect new information or subsequent events circumstances or changes in expectations, except as required by law.

Please also note that the company's press release earnings presentation and today's call include references to certain adjusted financial measures also known as non-GAAP financial measures exhibit two in appendix one of the company's press release and earnings presentation are respectively contain a reconciliation of each <unk>.

non-GAAP financial measure to its most comparable GAAP financial measure.

I will now turn it over to our CEO Jerry flush.

Thank you Laurie and good morning, everyone. Thank you for joining <unk> fourth quarter 2021 earnings call.

I am pleased to be here today to report on our results for the quarter and the year and to talk about the continued progress that occurred in the fourth quarter to best position the company for success now and in future periods. We.

We have maintained our focus on the key priorities, we set earlier this year.

Earlier, yes earlier this year excuse me and the results reflect the good things that are coming to fruition, while we have much more work to do in 2022, we remain committed to continue to execute on our strategy. Throughout next year. We're also pleased to report that our board of directors voted yesterday to approve a nine <unk> per share dividend.

At this time the intention is to consider the declaration and payment of dividends on a quarterly basis and of course, it's subject company results.

As part of our quest to provide greater value to our shareholders. We believe this demonstrates our commitment to do so.

I do want to take a minute here and thank all of my Amgen colleagues for their dedication and effort again this quarter, we have a great team and we're excited about the strong additions to the amarin family that happened this past quarter. They will play an essential role in our growth in 2022 and beyond.

I will now provide a brief overview of our performance in the fourth quarter and year and then Carlos will go over the details.

So turning to slide three you can see a summary of our fourth quarter highlights. We are pleased to report record results for this quarter of note net income attributable to the company was $65 5 million, that's up 284% quarter over quarter.

This was primarily driven by a onetime gain on the sale of our headquarters building higher average yields and balances on loans and lower average balances on customer Cds and brokered time deposits also contributed to improved core results.

Our total gross flows were $5 6 billion up from $5 5 billion last quarter, even with $337 million received in loan prepayments and the sale of $49 4 million from New York City loans classified as available for sale. Our total deposits were $5 6 billion flat to last quarter.

Core deposits increased by $109 $4 million this quarter compared to the third quarter.

The company's capital continued to be strong and well in excess of the minimum regulatory requirements to be considered well capitalized at December 31 2021.

As previously announced we completed the cleanup merger, which eliminated the shares of class B common stock and simplified our capital structure. We also declared and paid our first cash dividend of <unk> <unk> per share, which was paid out here in the first quarter of 2022.

As a result of these actions there was an increase of 12% and tangible book value over the same period.

Additionally, we are pleased to announce that we've repurchased $27 9 million of the $50 million share buyback program that was approved in the third quarter of 2021 in total 893394 shares of class a common stock were repurchased as of December 31, 2021, we intend to continue.

To be opportunistic and repurchase shares dependent of course on availability and pricing.

So now we'll move to slide four we thought it would be helpful to provide you with a reconciliation of shares as of year end after having completed the cleanup merger and the share repurchases I. Just mentioned here you can see the impact each of these had in reducing the number of shares issued and outstanding which as of December 31.

In 2021 totaled $35 million 883320 shares of class a common stock.

Turning now to slide five our core <unk> increased to $18 9 million or three 4% compared to the $18 3 million, we reported in the previous quarter as.

As we've previously stated we believe it is essential to show the net revenue growth of the company, excluding any onetime gains or losses or other nonrecurring items in order to show Ameren score earnings power.

We will go over key actions on slide six now.

There is a number of key actions taken during the fourth quarter. We have continued to focus on driving efficiency as well as set the stage for future growth. So our nonperforming loans decreased to 89% of total loans, a substantial decline compared to <unk> 21.

As part of our stated commitment to reduce the level of non earning assets on our balance sheet. We are diligently working to further reduce this level of non performers here in the first quarter of 2022.

We closed our Wellington branch in the fourth quarter of 'twenty, one and announced a new branch in downtown Miami, which we expect to open in the fourth quarter of next year of this year.

The new location will be within met square in the heart of Miami and one of the nation's fastest growing urban centers. The new banking center will deliver full banking services, so consumer business banking private banking commercial and wealth management will have a presence here.

Ameren mortgage continues to expand at this quarter, we added 20 ftes focussed on the wholesale business.

We also hired a terrific south Florida based domestic private banking team to focus on large private banking relationships, including professionals law practitioners in medical offices. Among others. We also hired a new head of procurement as part of our ongoing efforts to look for additional cost savings as well as our new head of loan syndication to.

US to onboard large business opportunities in the markets, we serve and to effectively manage risk.

We executed an agreement with <unk> to become a strategic investor in their blockchain funds.

We like the folks at <unk> Finch up and I'm sure. This is true at a lot of well known banks across the country that also committed to invest we believe blockchain will eventually become the dominant operating infrastructure of the financial system.

Excited about the potential here to potentially to comment on early adopter of this transformational technology.

As we previously announced we entered into a multi year outsourcing agreement with financial technology leader.

<unk> to assume full responsibility over a significant number of the banks support functions and staff.

Putting certain back office operations effective January 1st 80, full time equivalents were transferred reducing our total full time equivalents to 683 inclusive of bandwidth mortgage we have an estimated annual savings of approximately $12 million from this partnership while achieving greater operational.

<unk> efficiencies and delivering advanced solutions and services to our customers.

Our new imagine a bank campaign was launched during the fourth quarter of 'twenty one.

And a significant expansion to it went live on January three 2022.

<unk> over 'twenty billboards throughout South, Florida, including two high impact words in the Miami downtown area that are delivering more than 125 million impressions in the south Florida market.

We also continue to leverage our partnership with the Atlantic Division, leading Florida Panthers to drive brand awareness.

Please note the front cover this earnings deck is a great example of imagine a bank branding we are now using.

I will now turn to slide seven.

Here, we've outlined our key performance metrics, which continue to show improvement with the exception of a slight decrease in noninterest bearing deposits over total deposits.

Please note that the large improvements in efficiency ratio ROA and ROE and the charts include the onetime gain on the sale of the headquarters building.

For ease of reference we showed the same three core metrics. Excluding this one time gain gain and one other one timers in the footnotes to this slide.

Here you can see the efficiency ratio was relatively flat quarter to quarter given the investment we are making in revenue producers regarding the efficiency ratio. Please note. We will continue our focus on rationalizing our cost structure to improve profitability as well as offset or reinvesting in the business I'll comment more on this.

Later in the call.

So if we turn to slide eight as we did last quarter. This focus is solely on Ameren mortgage since we started taking applications in may of 2021, <unk> has received 299 applications and closed on 109 loans totaling $52 6 million 61 of them.

<unk> loans were funded in the fourth quarter totaling 32 point of <unk>.

$4 million as we mentioned earlier <unk> added additional experienced personnel this quarter to focus solely on its wholesale business.

So with that said I'll now turn things over to Carlos who will walk through our results for the quarter and year in more detail.

Thank you Jerry.

Good morning, everyone. So turning to slide nine I'll begin by discussing our investment portfolio.

Our fourth quarter investment Securities balance was $1 3 billion out of which 240 word cash.

Slightly down from the $1 4 billion in the previous quarter and flat compared to the fourth quarter of 2020.

When compared to the prior year the duration of the investment portfolio was extended to three six years due to the lower prepayment speed three quarters in our mortgage backed securities portfolio.

Given the extension, we will focus our investment strategy on assets with lower duration and better repricing profile in anticipation of interest hikes in 2020 due.

The floating portion of our investment portfolio reached 10, 6% as of the end of the year.

Continuing to slide 10, let's talk about the loan portfolio at the end of the fourth quarter total growth loans were $5 6 billion up one 6% compared to the end of the last quarter. The increase in total loans was primarily due to higher loan balances, which resulted from an increase in loan production, despite having received $337 million.

Payments, primarily from the <unk> portfolio and soon almost $50 million from the New York portfolio.

Consumer loans as of December 2021 were $423 million, an increase of $65 million or 18% quarter over quarter. During the fourth quarter of 2021, the company purchased approximately $86 million of higher yielding indirect consumer loans.

<unk> held for sale totaled 158 million as of December 21.

Which includes $15 million in mortgage loans in connection with the activities of primary mortgage on $143 million in loans for in our New York CRE portfolio.

On slide 11, we provide an update on the New York loan portfolio.

Total loans outstanding from the former appeal have declined to $491 million in the fourth quarter of 2021 from $627 million in the third quarter 2021.

During the fourth quarter and as I just mentioned, we sold $49 4 million in loans held for sale at par also in the fourth quarter, we sublet our former office in New York.

Turning to slide 12, let's make a closer and due to the credit quality.

Credit quality remains sound and reserve coverage is strong the allowance for loan losses at the end of the full quarter was almost 70 million down 16, 2% from $83 4 million at the close of the previous quarter.

We released $6 5 million from the allowance for loan losses in the fourth quarter compared to a release of $5 million in the previous one.

Their release, Westbury, mainly driven by $6 1 million due to upgrades payoffs and paydowns of nonperforming loans and special mentioned loans, a release of $5 4 million as a result of improved macroeconomic conditions and <unk> 5 billion due to recoveries. All of this was offset by $4 2 million.

Additional reserve requirements for charge offs, and one 3 million due to loan growth.

Additionally, the allowance for loan losses associated with COVID-19, pandemic decreased slightly to approximately $14 million in the fourth quarter of 2021.

Net charge offs totaled $7 million in the fourth quarter compared to almost 16 in the third quarter charge off during the period were primarily due to $3 9 million in commercial loans, $1 8 million <unk> loans, and $1 4 million, mainly consumer loans offset by <unk> 5 million in recoveries.

Sure with the coffee trader relationship, we collected $4 8 million, which contributed to a release of $2 3 million in specific reserves assigned to this relationship.

The current outstanding is $9 1 million with a specific reserve of $4 2 million.

Nonperforming assets totaled $59 5 million at the end of the quarter.

A decrease of $33 million or almost 36% compared to the third quarter and a decrease of almost $29 million or 33% compared to the fourth quarter of 2020.

The ratio of nonperforming assets to total assets was 78 basis points down 46 basis points from the third quarter of 2021 and down 35 basis points from the fourth quarter of 2020.

In the full quarter of 2021, the coverage provided by loan loss reserve to nonperforming loans increased to 140% from one 1% in the previous quarter and an increase from the 127% we reported in the fourth quarter of 2020.

Continuing to slide 13 total deposits at the end of the third quarter were $5 6 billion consistent from the end of the third quarter domestic deposits totaled $3 1 billion up $46 7 million monthly, 5% compared to previous quarter was foreign deposits totaled $2 5 billion or <unk> 43.

<unk> down compared to the previous quarter.

Core deposits, which consists of total deposits excluding time deposits were $4 3 billion as of the end of the fourth quarter, an increase of $190 million or two 6% compared to the previous quarter.

<unk> includes interest bearing deposits of $3 1 billion and noninterest bearing demand deposits from $1 2 billion as of the end of December .

Note during the fourth quarter of 2021, the company commenced a new relationship which allows us to capture municipal bonds.

Offsetting the increase in total deposits was a reduction of $1 5 million or seven 3% in time deposits.

Customer Cds compared to programs quarter decreased $59 million or five 3%.

As the company continued to lower CD rates and focus on increasing core deposits and emphasizing multi product relationships versus single prototype cost Cds.

Brokered time deposits decreased $46 million or 13, 7% compared to September 2021, we continue to deemphasize this funding source.

Next on slide 14, I'll discuss the net interest income and net interest margin.

2021, Q4, net interest income was almost $56 million up seven 6% quarter over quarter and up almost 15% year over year.

The quarter over quarter increase was primarily attributed to the higher average yields including prepayment fees and balances on loans as well as lower average balances in customer Cds and brokered time deposits.

There were no significant offsets to the increase in the net interest income during the four quarter moving.

Moving to the financial margin Q4, net interest margin was 317% up 23 basis points quarter over quarter, and up 56 basis points year over year.

The change in non interest in net interest income I mean, whats primarily driven by an increase in the yield of our loan portfolio, which is now at 410% an increase of 18 basis points versus the third quarter.

We continue to focus on improving our NIM by proactively seeking incremental spread and volumes in our loan originations.

Continuing to slide 15, noninterest income in the fourth quarter, we had $77 3 million.

Versus $13 four in the previous quarter the increase during the fourth quarter was primarily due to $62 4 million nonrecurring gain on the sale of our company headquarters and higher income from client derivatives brokerage and advisory services mortgage banking and services fees that were not.

Can offset through noninterest income during the fourth quarter.

<unk> assets under management totaled $2 2 billion as of the end of the quarter up almost $33 million or one 5% from the end of the third quarter predominantly for net new assets as we continue to execute our relationship focused strategy and increase share of wallet.

Turning to slide 16 for quarter non interest expenses was $55 1 million up $6 7 million or almost 14% from the third quarter.

Three 5% coupon $5 million year over year.

Quarter over quarter increase was primarily due to the following higher consulting legal and professional fees related to the cleanup merger and expenses related to consulting services received for an FIA.

Higher salaries and employee benefits due to new hires the number of mortgage and private banking teams and higher variable compensation expenses.

Higher occupancy and equipment cost in connection with the termination of a lease of Fort Lauderdale branch, which was closed in 2020.

Higher marketing expenses at multiple brand awareness initiatives were deployed during Q4.

These increases were partially offset by lower depreciation and amortization expenses, which includes the effect of the sale of the company headquarters building and lower at the Acs assessment and insurance expenses.

We consider that one 9 million of noninterest expenses were nonrecurring items.

Core non interest expenses was $53 2 million in the fourth quarter of 2021.

The efficiency ratio was 41 four in the fourth quarter of 2021 compared to $74 two in the previous quarter and $85 eight in the fourth quarter of last year.

Both the quarter over quarter in the year over year improvements were primarily driven by the gain on the sale of the company headquarters.

Core efficiency ratio, which adjusts for nonrecurring items was <unk>, 75% in the fourth quarter compared to 72% in the third quarter of 2021.

71% in the fourth quarter of 2020.

The increase was primarily driven by noninterest expenses described above partially offset by higher loan average yields including prepayment fees and Bob.

Moving to interest rate sensitivity on slide 17, our balance sheet continues to be asset sensitive however, less than he used to be.

As of the end of December 2021 half of our loans either have floating rate structure or mature within the year. We are now looking to gain back some of that sensitivity by decreasing the duration of our investment portfolio and by focusing on assets with lower duration and better repricing profile as I previously mentioned.

Other initiatives include increased duration of our liabilities.

I will now turn back to Jerry to talk about <unk> progress in the near and long term initiatives.

Thank you Carlos here you can see on slides 18, and 19 that we've provided some details on what has been done in connection with each of the key initiatives during the fourth quarter. So let's start with deposits first we continued reducing broker deposits to total deposits towards our target of 5% our loans.

Posit ratio came in just under 100%.

As previously mentioned, we added an experienced private banking team that will help us drive incremental deposit growth. We continue to work on enhancing a completely digital onboarding platform and we also implemented zelle commercial being one of the first community banks to implement this PDP payments platform.

And finally, we tested a new digital promotion campaign with a cash bonus for opening value checking accounts. This short term offer raised over $9 million in new deposits.

Regarding brand awareness, we placed continued emphasis being active in both public relations and social media and of note. We just past 10000 followers on Linkedin.

Our imagine a bank campaign went live in the fourth quarter and on January 3rd week.

Put up 'twenty Billboard's two high impact boards in the Miami downtown area and there's examples that we can share on slide 20.

And as I noted, we continue to leverage the popularity and exposure of our Florida Panthers partnership both at the arena as well as in our marketing efforts.

Regarding the rationalization of business lines and geographies, we completed the sub lease of our New York loan office space.

As previously announced we disclosed we closed one branch in the fourth quarter, and then we announced our new branch in downtown Miami.

Ameren mortgage continues to add to their team and as we noted there are 20 additions to the wholesale team here in the fourth quarter rig.

Regarding the pathway to 60.

Previously mentioned, the multi year outsourcing agreement with Fas.

We also on boarded our new procurement officer to drive incremental cost savings.

Regarding our capital structure optimization.

Completed the previously announced cleanup merger to simplify our capital structure.

The board authorized on September test, a new share repurchase program under which the company may purchase from time to time up to $50 million of class a stock.

We purchased repurchased $27 9 million through December 31 post the completion of the cleanup merger.

And then on December <unk> the company.

<unk> declared its first cash dividend as a public company for <unk> per share.

And then finally.

An update on ESG, we started to implement our diversity and inclusion program to improve and maintain an authentic inclusive culture. We've executed on several initiatives to consider the environmental impact of our direct operations. We developed the governance structure for our ESG programs. So the framework is now in place.

And we still intend to share our first ESG report in the early second early part of the second quarter of 2002.

In addition, we installed charging stations for electric vehicles at our headquarters building location, and we invested $3 million in green bonds that investment wasn't an energy company.

Called Nextera, which demonstrates our commitment at all phases of the company to this important initiative.

Now on slide 20, as I noted earlier there are some examples that you can look at on the brand awareness for doing both at our downtown branch as well as with the Florida Panthers near downtown Miami.

So before we turn to Q&A there are a number of key actions underway in 2022, I thought it would be helpful to share.

So first we think as a community bank, it's imperative for us to expand our SBA efforts given our build out of our business banking area. This past year as well as the additional in branch and online capabilities, we now have with numerator.

We'll provide more information as we finalize our plans during the first quarter of this year.

We intend to continue to look for financial technology, as a way to most efficiently attract and serve our customers. The investments. We made in March then and raised for example will begin to show in our growth and results in 2022.

We're currently evaluating other providers with the intent of enabling us to deliver existing products more effectively or adding to our current product suite.

So as an example of that we have just entered into a letter of intent with a top notch white label provider to enable us to provide equipment financing both to our existing customers as well as to new customers. We believe it is essential for us to have equipment finance and the commercial bank as a complementary offering to the working capital and asset.

<unk> lending we currently provide we.

We intend to have representatives to generate direct business and the Houston, Tampa and South Florida markets, starting in the second quarter of this year.

So speaking of Tampa, we've sublet space, we've already started with one key officer has begun generating commercial real estate opportunities for us and we're actively recruiting two C&I focused officers to add to the team.

Adding a treasury management sales and support team there is essential and will be our next hiring priority.

Regarding work underway to improve the efficiency of the company and thus the efficiency ratio.

The steps we took in 2021 like the outsourcing of internal audit and the Fios initiative will reduce costs starting in 2022, while improving quality and efficiency. We know more work is necessary to achieve our stated goals and are taking multiple steps organization wide control and further reduce costs.

Where practical.

The addition of our new procurement officer, and placing further reliance on new technology versus cumbersome processes. They are just two of the ways. We intend to pay for the additional investment in business development personnel that we will continue to make and we will also look at ways to reduce unnecessary expenses and as we did throughout 2021, we.

To update you as we continue to make progress.

We're also reevaluating parts of our organization structure, where we've not made changes to date to become more efficient and more effective process improvement is another area of focus across the company throughout 2022.

We've also initiated work on how we report on our quarterly results were evaluating when reporting our results split out into two business segments.

<unk> and commercial each would show domestic and international components. We believe it is important as we grow and with our intent to expand to have razor like focus on each of these critically important segments, which serve completely different customer basis, where we invest why we invest how capital is allocated to each of.

These segments is essential information for our board, our management and investors to understand as we continue our transformation here at Emerald.

As this project progresses, we will keep you posted each quarter.

Everything we are doing continues to be with an eye towards being able to profitably grow and produce the kind of consistent returns, we intend to achieve for our shareholders.

So with that I'll stop and Carlos and I will look to answer any questions. You have Victor Please open the line for Q&A.

Sure.

As a reminder to ask a question Chris Star one on.

On your telephone.

Are your question press the pound key.

Once again.

Please standby.

Our first question will come from the line.

Michael Rose Raymond James You May begin.

Hey, good morning, everyone. Thanks for taking my questions.

Nice to see you guys. Good morning, it's really nice to see you guys hit the ROE.

ROTC target.

This quarter as we think about moving forward with potential rate hikes.

And such and counter balancing all the investments and all the other projects that you all are working on which is obviously significant continues along the path that you're on how should we think about sustainability of that.

Those profitability metrics and maybe it might be too soon but do you have any sort of.

Intermediate term aspirational targets profitability wise.

Be willing to share at this point thanks.

<unk>.

Yes, Michael its Jerry we're still committed.

As we stated before to a 60% efficiency ratio by the end of the four quarters upcoming in 2022.

I think it's clear it should be clear that that's going to come from a combination of profitable growth.

Clearly we've done some substantial investments in business development personnel.

And in technology, and we're going to continue to look for people that are revenue producers that are additive.

So the growth story here and I think it's.

We're still on track in my mind for the achieving of a $1 10, and 60 and that's what we stated and frankly, how we laid out our plans for this year.

So by the fourth quarter.

I think youll see two which is typical for for everyone in the industry that first quarter.

Expenses will be a little elevated of course, because you know you have the restart with payroll taxes et cetera, but I think just in terms of.

Where we will be over the course of the year. We think the growth that we showed here in the fourth quarter is something that our intent is to execute on and continue to build on that.

Each and every quarter throughout the year, so that you'll see the positive effects of that certainly by the fourth quarter.

That's really helpful. Jerry. Thank you and then maybe just shifting back to loan growth, obviously very strong. Despite the continued run off at.

The New York City, which is which is really good to see.

Kind of as you look into your Crystal ball and think about the puts and takes of of what you. All are trying to do do you have any sense for.

What loan growth X P people don't really have any PPV, but what loan growth kind of look like.

As we move through the course of the year. Thanks.

Yes, no I think we still feel that.

Look there is theres some repayment activity.

As scheduled just based on maturities for the remaining New York portfolio and there is definitely interest.

In those receivables that are there so that's a little bit of a headwind for us, but when you look at.

The rest of the business the pipeline is strong.

Got a lot of strength really across the board the private banking team the business banking team.

<unk> team the C&I team I mean, it's very consistent one thing that has happened throughout the year is that the pipeline has just continued to build and we're executing on our fair share of whats in the pipeline those percentages are increasing so.

If we keep going down that path I think were in a good place for I'll call it something in the single digits growth.

Over the course of the year.

Alright very helpful. And then maybe just one final one for me so the loan to deposit ratio is creeping up a little bit higher obviously, there's a mix shift going on which is which is very positive I think for franchise value longer term at one point, though does with loan growth seemingly accelerating does that become a larger issue and what are the strategies to grow.

Core customer deposits.

Yes, great.

Great question and I think that's one of the real positives that of adding the private bank capabilities. In addition to.

All the investments we've already made and in Treasury management I think you can see a big change in the company win.

Some of the first comments, we're making about expansion into Tampa is to have twice the number of C&I personnel and to add treasury sales and support.

Almost immediately and so we're looking to be a self funded and all of our areas at this point.

I think in terms of.

And we're going to obviously youll see and learn more about over the course of 2022, the campaigns that will be running both for things like business checking for consumer checking.

<unk> will be very complementary in terms of the growth in the core side I think it's very safe to say with the.

Potential of these the number of rate increases can be debated.

But as Carlos mentioned in his comments. We're obviously also at the same time looking at the changes we need to make in the balance sheet to also extend duration on those.

A fair bit of liabilities, so as things mature throughout the year. We're also going to be doing some extension here to take advantage of the rates.

Keep the cost of funds on everything other than core and check as best as we can.

Very helpful. Thanks for taking my questions and good to see the continued progress.

Thank you. Thank you.

Alright.

Comes from the line.

Stephen Scouten from Piper Sandler.

You may begin.

Hey, good morning, everyone.

Hey, good morning, Stephen.

I am curious I know you Carlos noted the asset sensitivity has declined a little bit lately.

I wasn't sure.

What was driving that explicitly.

You can kind of give some more color on what created some of that shift downward in.

And if there are any specific.

Kind of initiatives.

To benefit further from higher rates in the coming year.

Sure. So if you recall, if you compare our year over year there was.

A significant drop independent posits and that was by design pretty much.

So there was.

Run off of kind of policies that we considered a single product.

Based on the analysis that we prove to US. Therefore, we took advantage of decreased rates. So we had.

The flexibility in the balance sheet to decrease.

Deposits. So we did it we did it with the broker as well so those were items that use.

On a renewal basis, you would have.

Added duration to the liabilities therefore.

Decreased sensitivity.

Better to see improved sensitivity to interest rate up.

So those items were primarily and additionally to that with the interest rate environment duration of the investment portfolio have been increasing a little bit. So those two items I would say the.

Dropping the duration of the liabilities and increase in duration.

Investment portfolio have created.

Diminished profiling.

Interest rates sensitivity, but we are working to add it back.

Backing some sensitivity to interest rate up.

Okay, great great.

By the way, which by the way was accretive because you see the need the way it is.

Sure sure.

With the customer.

Yes definitely okay. Good.

Thinking about.

Some of these new additions you've made the head of loan Syndications I know one of the big pushes for you guys have been making the loan book, maybe a little more granular and getting some higher yielding loans. So I'm wondering how to think about that versus that overall shift for the bank.

We might see a little bit of a reversal. If you guys are going to look to book some larger.

Loans here would that syndication desk.

Yes, Stephen it's Jerry look I think it's.

Must have as part of our Arsenal to have a loan syndication desk.

We get presented with some larger opportunities that.

It is not something that we can handle but if we can syndicate part of that out and obviously very very helpful for us for.

As part of our growth story and look the way that.

Process works.

We'll obviously by having a desk also potentially see.

Paper from other institutions as well so I think it's a win win for US it's something that our team is very good at unearthing opportunities and what we don't want to do is limit ourselves, we obviously want to manage the risk properly.

And I think that Thats. Another part of this where we don't want to have.

Large single exposures and so.

We're excited about.

Having this area is another part of our Arsenal as I call. It.

For business development in 2022.

Okay, Great and then maybe last thing for me just you.

Guys have made some pretty significant improvements here on the nonperforming loans and.

You said, you're going to focus more on that in the first quarter, but you still have a pretty big chunk of the Covid related reserves I think little over $14 million. So I'm just kind of wondering how you guys are thinking about that today.

And what could be the pace of potentially running running those excess reserves over time.

Yes look I think you take each quarter as it comes.

We're as we said very very focused on reducing the non earning asset load off our books I'm trying to get every dollar into an earning asset.

Category is critically important and so.

You should expect to see us working hard to get more down this quarter too early to comment further on that but.

The team is all in and trying to drive that number down substantially again.

With that being said.

Clearly by doing that and I think when you think about our net charge offs that had been happening.

During the quarter, it's all stuff that we had previously reserved and so.

It's a harbinger of.

What I would say is as we work our way through obviously there'll be some reserves that possibly can be freed up if we don't need them in order to liquidate those positions, but so far so good and clearly I think it's a big philosophical shift for us as an organization that we're trying to.

If we have to onboard something we're trying to resolve it as quickly and expeditiously as possible.

Got it okay, great very helpful. Appreciate the time, guys and congrats on the quarter.

Thank you. Thank you.

Our next question comes from Ryan Brody Preston from Stephens you may begin.

Yes. Good morning, everyone can you hear me okay.

Yes, Brody how are you.

Im doing well. Thank you. Thank you I hope I hope you are as well.

Thanks.

I wanted to just I just wanted to circle back real quick.

And I hopped on a bit late I was coming from another call. So I apologize if I missed it but you had the $337 million.

Prepayment prepayments that occurred from from CRE.

But how I.

I guess im looking at the loan yield and it was up like 18 basis points linked quarter, but I'm wondering what the dollar amount of prepayments fees were and what that impact on on quarter over quarter loan yields was.

So on the.

I can give you in terms of the of the knee was approximately four basis points the impact on the MIM due to prepayments. So I guess, if you want to take a normalized would be like a $3 13.

Without the special prepayment that we collected over to quarter now would be a fair number.

Okay.

Okay. So.

$700000 does that sound right more or less that's right Uh-huh that's precisely the case.

So what else was it that drove the linked quarter increase.

In loan yields.

So.

Yeah. So there was.

Additional purchases that were done on the indirect lending program.

Which improves the yield of the overall loan portfolio.

Also the new transactions that came in in the C&I space. So as you'll recall, we always been talking about setting floors and beat on trying to price neutral sanctions with good spreads. So we have been passing on transactions that didn't provide a good yield and jumping into ones that we consider to have.

Good credit profile and a good credit spreads so.

Kind of a combination between those items were the ones explaining the increase.

Side of the prepayment penalty.

Got it got it okay.

And then just maybe on the expense front.

Yes, I had like 30, plus FTE is the biggest chunk within within the mortgage segment.

And you're starting to see your mortgage revenue trajectory improve.

But obviously with all the new hires and the Frontloading of expenses.

The losses on that.

That business line have increased and so I guess I wanted to ask.

Could you remind me what the current number of Ftes in the mortgage business is do you think you've kind of reached.

A point of critical mass on the employee side we're.

Now it's about maintaining the employee base, you have and getting the production you need to turn that into a profitable.

Business line.

Yes, I definitely think that we have reached the critical mass stage in terms of personnel.

Bringing on this team who.

Lots of experience demonstrated performance, we think was a very opportunistic move for us, but I think in terms of.

We'll continue to look.

We can add quality people, we will but I think this team is very experienced and we will manage at this stage their compensation and number of ftes carefully to make sure that their focus is really on growing the topline going forward. So I think we're at a good place.

Where we won't see these big increases that we've obviously done quarter over quarter in 2021.

Really see that be flattish, if not even potentially down just depending on volumes right right.

The.

At this point that we reached number mortgage with 72 with these we consider is reflective of what they are structural.

Structural.

If the economy would be maybe there is very little.

Additions that need to be at it.

So there.

The structural so.

Expenses that you see in Q1 because of this new team that jewelry was mentioning was just higher in Q4. So when you look into the Q1 online mortgage cost structure that would be reflective of what the long term.

Or the structural costs it would be for this company. So we believe that it reach a point in time that is already all set and with the right staffing with the right platform and infrastructure to go.

Got it and I guess as I think about the expense trajectory going forward.

And I tried to.

Normalized.

This quarter you were at $53 two.

Opex and then you've got the.

The efficiency plan that kicks in next quarter, and so kind of stripping that out youre at about $50 million or so.

Pro forma kind of setting that efficiency plan aside and so how should we be thinking of growth off of.

Off of that $50 million number for 2022.

So yeah, so fourth quarter run rate on the.

Total noninterest expenses.

There would be probably in the 52, 5% to $53 million approximately.

That includes the impact of AMR in mortgage as well so all in including the savings front.

Ftes that were outsourced through.

As on including a full quarter of the new teams that we're just higher he will take us probably to the $53 million run rate on the first quarter corrected for the first quarter operating expenses.

Okay are there any are there any seasonal items in the first quarter.

Incentive comp.

Okay.

Yes.

Okay. So I guess as we think about like maybe in the second quarter comes down a little bit, but I guess, maybe that's 52, 5% to 53 would be a good number to use on average throughout 2022.

Put a run rate yes.

Okay, Yes.

Brody to the comments that I was making is there is further things that obviously, we intend to be doing to make sure that the expense dollars are optimized.

There is as Carlos mentioned in his comments you have to take into account the.

Push that we're doing with marketing obviously to drive our business development.

Efforts.

As well as we obviously have the increase on the Red side right that has come from the building right. So we know by just doing those two things it would be natural for you guys to assume a high.

The higher expense is what we've been doing the last couple of quarters, but then you will have the positive effect of the core NIM because of.

Unknown, non earning asset was converted into earning assets.

On the fee income on the mortgage company et cetera. So that's the other component of efficiency that will give you. The overall picture and how do we plan to get to the 60%, Yes, I think the best way to think about this too.

We recognize.

There was there was an inflection point, where we need to invest in heavily invest in certain areas in order to get to kind of topline growth we need.

To support the infrastructure here, but I do want to just reiterate in no way shape or form should folks think of us.

We're not going to continue to look for ways to make sure that every dollar is towards generating revenue and where we can and we will continue to reduce.

Understood.

Understood and then I just had two two couple quick last ones I guess just on the NIM.

You all have a decent percentage of the of the loan portfolio Thats floating rate.

At the same time.

Seeing that in your and your cost of deposits.

Those have been coming down nicely, but you still have.

Decent amount of.

Higher cost Cds, and other CD costs kind of stalled this quarter and so I guess just help me think about.

Is there an opportunity as we think about rate hikes, where are there still opportunities to reprice down the CD book at the same time that the loan book is repricing upward because of a potential rate hike.

Yes, there would be I guess the biggest.

Repricing down was already obtained.

During during 2021.

During Q1, I, particularly feel that with the recent news on inflation and.

And that moves on potential moves there would be less opportunities to keep going down with the cost of funds there may be.

Specific opportunities in the CD portfolio to drop certain cases.

Particularly I don't think there would be significant costs or opportunities to drop 400 more the cost of funds also.

If you are trying to hedge your balance sheet to interest rate off on trying to increase duration that will come along with the liabilities that will cost more.

And that will start to add up but the opportunity is RMB assets being repriced.

Higher rate and that was precisely our objective of having a significant portion of our loan portfolio being floating.

Yes.

That's why there's such an emphasis on as I was describing.

The campaigns that we're going to be doing consumer business banking on the checking side as well as all the efforts we're doing in Treasury management.

The C&I growth.

We expect to bring on.

Just keep in mind that were deposits first and so the view is that we're going to continue to focus on how much we can get and core deposit growth.

Carlos is spot on we will be opportunistic as the CD maturities continue to come through we may elect to do some extensions on that so while that may not be the same type of health that has been as we've allowed that to either run off or downward reprice.

We will certainly protect ourselves on the cost of funds better bye.

By extending.

And the stuff Thats maturing.

Got it and then just on the securities portfolio.

You guys have.

Ticked up the the held to maturity growth, it's still only like 9% to 10% of total securities that we saw the third quarter.

Has there been any thought given to maybe as you continue to grow securities allocating more to the held to maturity portfolio just as we think about.

Rising rates and the potential for further negative impacts to OCI.

So we typically.

Keep our biggest portion of the manifest.

There is.

A significant portion of the portfolio of <unk>.

It doesn't have a greater risk component.

Probably like $700 million out of the $1. One just the securities or don't have a credit risk. So we may opportunistically add something but we never go quarter ahead of 15% to 20% of the total.

Portfolio going to HTM, so we really like to keep.

As a secondary source of liquidity into the SaaS portfolio.

Got it and is that three six years effective duration is in the deck is that similar a similar mix between the RFS in the HTM or is the first portion of the book shorter duration.

The HTM tends to have a little bit of a higher duration, but since the way it's not that much. So it's reflected pretty much of what is in the DFS.

Awesome. Thank you very much for taking my questions everyone I really appreciate it.

Sure sure. Thank you thanks.

Our next question comes from the line of Michael Young from <unk> Securities You may begin.

Hey, good morning, Thanks for taking my question I apologize I did hop on a bit late so if I ask anything that's already been covered feel free to just.

Past, but.

Deposit side wanted to ask just on the international deposits.

It really stabilized over the past couple of years, just curious if you could give any additional color on if thats more related to your proactive calling efforts on those customers stability in Venezuela.

Interest rates kind of what are the factors that are driving that and what should we kind of expect going forward.

Yes, Michael good question.

Attribute the vast majority of it to the improved utility of those accounts.

When we introduced zelle these accounts become.

Obviously increased functionality the ability to pay in dollars and so.

I think thats, probably the single biggest factor and stabilizing.

Then clearly there continues to be some growth that happens in new customers over.

The overtime right.

I think you can see we've got some diversification coming from other international sources other than Venezuela, Yes, we actually added Michael we entered a new well, it's not a new we have a couple of quarters that we have been publishing exhibit eight on our earnings release that has the contribution of.

Other countries and and year over year, you can see that that component actually added.

Almost 70% $75 million in other countries.

Which is the strategy that we have been deploying in 2021 due to specific teams that we're hiring in Texas that are bringing over deposits from order Latin American jurisdictions.

Okay, that's very helpful. Jerry.

And can you kind of started to touch on this a bit but would love to just get sort of higher level thoughts on as you achieve sort of the goals that you've laid out in this sort of more more quick sprint to get there with a lot of work a lot of heavy lifting on on everyone's part to get there.

On the heels of that there is kind of this need probably to continue to reinvest for growth. So should we expect sort of things to kind of stabilize for a period of time until sort of that revenue growth really kicks in.

So should we kind of expect performance to kind of stabilize a flatline, a little bit more or less.

A year or two following the achievement of the goals.

Yes, no I would expect.

To be reporting every quarter, where we have been opportunistic to continue to add Michael I think.

We've done the majority of.

Hiring that we've we've talked about we have some Rms.

Add in Texas and in Tampa as we.

Noted on the call, but I would tell you that.

Think in terms of if we can get positive operating leverage from an action, we're going to do it.

Because the focus for the organization at this stage.

Again, we've got a lot of heavy lifting to do this year as it relates to the.

<unk>.

Continued continuous improvement efforts, we talked about the.

The transition through.

Some of the applications as part of this Fas initiative et cetera, but at the same point in time.

It's about growing the company and I think our view right now is that we're really well positioned to do that.

I think that was part of what's been demonstrated in the fourth quarter overcoming the heavy level of prepayments prepayment activity that took place and I think we feel good about the size of our pipeline and the ability of our people to execute.

I would tell you I think our trajectory is to be bought as a growth model as part of yes. There is still some transformation efforts to take place during the course of this year I called it sort of there are certain.

Pockets in the company, we just had with.

With all the activity we did in 2021, we haven't really had a chance to do a few of the other areas but.

Our intent is to do that quickly and really be focused on.

Growth and driving as much organic growth as we possibly can.

Ed.

Okay.

And then just a last one for me maybe on capital allocation and Decisioning.

Docs up at almost one six times tangible book value now.

You've done a lot of sort of the capital unlocking actions, maybe within the balance sheet and in various different places. So should we really think about go forward. It's really just capital generation to support organic growth and then maybe dividend would be a priority over buyback now or how do you kind of think about that at this point.

Yes look I think it's safe to say our intent is to be consistent with the dividend.

I think we've established what people could assume is.

Trying to hit at least a 1% yields and then I think if you look at.

Where we are with the depth of capital that we have clearly we have the capacity to be able to return to shareholders.

Michael My comments in the call, we're going to we're going to continue to be opportunistic.

On the stock I think that's one of the things you have to be as it relates to share buyback, but to your point, we're getting to we're get into evaluation where.

It's not as simple as it was not that long ago, but our intent is.

We still have about.

Little over $20 million or so of capacity left in the brokerage our intent to continue to use it.

And be opportunistic where we can.

Okay. Thank you so much appreciate it.

Sure.

Thank you.

Thank you I'm not showing any further questions in the queue I'll turn the call over to Jerry for any closing remarks.

Sure. Thank you.

Thank you everyone for joining us today, we greatly appreciate your interest in our company I think you can see.

We are very excited about the progress that we've made throughout 2021 towards becoming a higher performing bank and again to reiterate we know we must remain focused in continuing to execute on our strategy to achieve the even stronger performance that we won in 2022, so have a great day and thank you again for your continue.

Support and your interest in Ameren.

This concludes today's conference call. Thank you for participating you may now disconnect.

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